ethanol

It is now clear that the federal corn ethanol mandate has driven up food prices, strained agricultural markets, increased competition for arable land and promoted conversion of uncultivated land to grow crops. In addition, previous estimates have dramatically underestimated corn ethanol's greenhouse gas emissions by failing to account for changes in land use.

It's an interesting time to watch biofuels markets. A couple of years ago, with commodity prices spiraling, there was great concern that fuel markets were outbidding food and feed markets for edible biomass. Now, reporter Judy Keen notes that the United States is facing drought in nearly 80 percent of the country's corn-growing area; and more of the country's landmass is facing drought than any time since 1956.

Below is an article on the end of VEETC titled "Looking at Life With an Ethanol Subsidy," published in Farm Futures on December 28th. In only a few short paragraphs, it captures so much of the industry spin on these issues over the years that is provided a great framework for calling them out. A link to the article is here.

Lots of action on the biofuels front to talk about: VEETC near death? Corn wiggling its way into advanced ethanol and biodiesel mandates. E15 gets a cool new warning label, but auto makers steer clear.

In the area of fixed income, one shouldn't be betting against Bill Gross of Pimco. The man is a walking, talking fixed income encyclopedia and routinely makes astute calls on bond trends and pressures. In March his total return fund (PTTRX) went to zero on US Treasuries. In April, he supposedly went short (update here).

During the early part of 2010, when the volumetric ethanol excise tax exemption (VEETC) looked like it was heading towards elimination, ethanol industry contortionist Bob Dinneen of the Renewable Fuels Association worked hard to paint the subsidy as vital to all things American. In yet another RFA-sponsored study by the industry's favored economist John Urbanchuk, RFA set out to quantify the bad things that would happen if VEETC expired. They came up with quite a list, summarized by

Last April when dried distillers grains DDGs started showing up in far flung markets, the industry touted it as an example of their global competitiveness. I was thinking subsidy arbitrage was more likely. Seems like the subsidies are closer to the truth. Philip Brasher summarizes the pending trade case launched by China for dumping DDGs. He notes that the case is likely retaliatio

The march to E15-ity and beyond continues, with DOE submitting vehicle tests for how older cars performed with the higher blends of ethanol. EPA allowed blends up to 15% for model 2007 and later vehicles in October 2010, and is expected to rule on earlier models (2001 and later) this month.

Ethanol blenders credit moves forward towards extension at current rates in the Senate. Even more ludicrous since even without the excise tax credit subsidy we are still forced to buy the stuff at above market prices under the federal Renewable Fuel Standard.

Chuck Grassley makes a good point when he argues that you can't treat ethanol and oil subsidies differently:

The federal government supports the use of biofuels—transportation fuel produced usually from renewable plant matter, such as corn—in the pursuit of national energy, environmental, and agricultural policy goals. Tax credits encourage the production and sale of biofuels in the United States, while federal mandates specify minimum amounts and types of biofuel usage each year through 2022. Tax credits effectively lower the private costs of producing biofuels relative to the costs of producing their substitutes, gasoline and diesel fuel.